Internal value chain for commercial experience companies

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Internal value chain for commercial experience

companies

By Alexey Smirnov

Thesis supervisor: Professor Joyce Falkenberg Master thesis in International Business

This thesis was written as a part of the Master of Science in Economics and Business Administration program - Major in International Business. Neither the institution, nor the advisor is responsible for the theories and methods used, or the results and conclusions drawn, through the approval of this thesis.

Bergen, June 2011

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1. Introduction

A lot of interesting concepts are discussed in contemporary business literature: work-play balance, storytelling, (extraordinary) experiences, state of flow... Some authors then attempt to aggregate such notions into bigger concepts. Let us list but a few examples of such bigger concepts: ―creative industries‖, ―dream society‖, ―emotionomics‖, ―experience economy‖. It is possible that some of these will advance one‘s general understanding of the world around, but none of the mentioned ones seem to be too useful from a managerial point of view. From the managerial perspective, one would want to classify things instead of grouping them relatively chaotically. At least, that seems like a proper way to understand what your company does or wants to do, and to organize your business accordingly.

Popular concepts can give enough material and space for more thorough scientific research.

That is definitely the case with the ―experience economy‖ one. A simple search for the term on www.sciencedirect.com gives over 30.000 business- and management-related hits.

Empirically, the international impact of the notion can be illustrated by the fact that entertainment, tourism and education industries can be seen as parts of this ‗experience economy‘… In this thesis, aside from the concept‘s origins, scope and contradictions, we discuss its scientific elaborations. We will show that there really exists a special type of economic offerings called ‗commercial experiences‘ and that it is a subset of services.

However, commercial experiences and experiences in general are two very different notions.

It is argued that experiences as a general notion are neither a subset of services, nor a specific kind of economic offerings, while commercial experiences are both.

Every enterprise provides some value to its clients. In order to do so, it has to know what exactly is of value – in a firm‘s particular offering, to the firm‘s particular customers. When that is understood, the company directs and structures its actions to properly shape its value proposition. One of the implications of this simple logic is that what a company does depends on what it wants to offer to its clients. I.e. the structure of its business processes depends on the specifics of its offering (a similar logic is seen in Norton and Kaplan, 2004).

Service, manufacturing and raw mining companies internationally will thus have different business processes, value chains and structures by virtue of their offering types alone (e.g.

Nooteboom, 2007; Stabell and Fjeldstad, 1998). Commercial experience offerings have their specifics, so the typical internal value chain for this industry will differ from those for other

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services, manufacturing or mining. Still, this has not been reflected in literature yet, to the best of the author‘s knowledge.

This provokes several general questions: how do we organize a commercial experience business? What business processes could be useful for creating a proper value for the customers? How could a succession of such business processes look like?

These questions are not concrete enough yet, but they give us two directions literature-wise:

experience quality and business process frameworks. Let us explain. Pine and Gilmore (1999, 2007) say experiences are at the moment a way to avoid cost-based competition in developed countries. So, commercial experiences have a natural affinity for quality-based competition. Besides, they deal with customer‘s psyche, so it seems unethical to provide cost-driven instead of benefit-driven value (for the description of respective strategies see e.g. Porter, 1985). Because of these two reasons, we will assume in this thesis that customer value in commercial experiences should rely on product quality more than on its cost. If a company chooses to rely on advanced product quality in its value proposition, understanding what quality means for their type of product is a must. Thus, we will have to research commercial experience quality in this thesis. When this knowledge is gained, it is possible to organize a company‘s business processes accordingly. So, we will want to find a suitable framework to depict a company‘s business processes, including their structure, succession and possible impact on the end product quality.

Now, we can formulate preliminary research questions:

What is commercial experience quality?

What could an industry-adequate structure of business processes look like for commercial experience companies?

What business processes could be considered as industry-specific factors of product quality?

Is it reasonable to outsource or offshore any business processes in commercial experience companies?

Note that the second question, which is central for our thesis, is not based on any particular theory yet in this formulation. This will change after we choose a theoretical framework.

These questions will be discussed in more detail in a dedicated chapter; they will be answered using two methods: critical literature review and in-depth expert interviews.

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The literature review part of this thesis consists of chapters 2, 3 and 4. First, we discuss the notion of experience, moving from its general understanding to commercial experiences as a specific type of economic offerings. Second, we elaborate on commercial experience quality and its dimensions. This will answer our first research question to a large extent. Lastly, we ponder the notion of business processes, review some process-related frameworks and choose one as a platform. This is done to help us answer the second research question and portray a typical internal value chain for the industry-specific firm.

In chapter 5 we discuss our research questions and possible methods for answering them.

In chapter 6, empirical research methods are highlighted. It is argued that the research questions posed above are exploratory in nature and fall into the phenomenological qualitative approach. In-depth expert interviews are shown as the best methodological choice for the thesis‘ empirical part. First, empirics will support the literature-based answer to the first research question. Second, it will be used in answering the other three by solidifying possible conclusions from the literature. At the end of this methodology chapter, we present our respondents.

Chapter 7 showcases the data collected and its detailed analysis. Chapter 8 then summarizes the most important findings from the data. In this chapter we also answer the main research question and synthesize the internal value chain for commercial experience companies. Each of the processes comprising it is discussed in detail using both our interview results and the literature review. Lastly for the same chapter, we compare our resultant value chain to the previous theories

Chapter 9 concludes our thesis, summarizing it, discussing its possible practical implications and possibilities for future research. When theory and empirical methods are in place, we synthesize a typical internal value chain for the industry-specific firm and depict it in a diagram.. This allows us to then formulate thesis conclusions.

This thesis has its limitations. Due to the relative youth of research on commercial experiences, this work is restricted to phenomenological issues, and does not concern itself with statistic validity of the concepts derived.

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2. Experience as an economic offering

In order to understand what experiences as an economic offering are, we have to first clarify what they are in the general meaning of the word. Then we will discuss the popular concept of ‗experience economy‘ – its origins, scope, contradictions and elaborations. Lastly, we will conceptualize and define the notion of ‗commercial experiences‘ as opposed to experiences in the general meaning of the word. The place of these will be shown amongst other types of economic offerings.

2.1 Experience as a general notion

People have long thought of experiences as a vital part of life. We perceive (‗experience‘) the world through our five senses, acquire knowledge and impressions about it and remember these.

The Oxford English Dictionary defines experience as ―practical contact with and observation of facts or events‖, an ―event or occurrence which leaves an impression on someone‖ or the competences acquired via that observation or event¹. The word could also be used as a verb, meaning ―to encounter or undergo (an event or occurrence)‖ or ―to feel (an emotion or sensation)‖. It takes its origin from Latin experientia, from experiri 'try' (ibid). One of the other popular definitions states that ‗experience‘ is ―something personally encountered, undergone, or lived through‖² and another moves up in scale saying that it is ―the conscious events that make up an individual life‖ (ibid).

The concept of experience, along with many neighbouring ones, has received considerable attention in psychology, philosophy and religious studies. In psychology, perception (or perceptual experiences) is one of the main focal points of study (see e.g. Freedheim, 2003).

Philosophical mind-body problem, first conceptualized by Descartes (Olby et al., 1990), raises the question of whether the immaterial and material worlds are separate or unified.

This can be furthered to ask whether we just receive physical signals from the outside world

1 http://oxforddictionaries.com/view/entry/m_en_gb0281190, retrieved on 05.04.2011

2 http://www.merriam-webster.com/dictionary/experience, retrieved on 05.04.2011

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with our brains, touch something immaterial in it with our own immaterial something called

‗soul‘ or these two processes are one and the same. Popper & Eccles (1977) consider the two processes different, inadvertently calling the latter the ‗world of subjective experiences‟.

When we speak of ‗subjective experience‘, we cannot omit the notion of ‗qualia‘ that is usually used in close conjunction with it, if not as its synonym. More precisely, a quale is

―the way a thing seems to us‖ (Dennett, 1985). It is a set of perceptible qualities of an object that are subjective. For example, that ethereal ‗something‘ about a beautiful sunset that cannot be measured, but can be seen and felt by a human being would be a quale. Since subjective experiences deal with the ‗ethereal‘, religions of the world are also naturally concerned with experiences – spiritual, sacred ones. These are seen as going beyond the

‗usual everyday experiences‘ and connecting the experiencer with the divine (see e.g. Batson et al., 1993). After all, what is the difference between experiencing a subjective quality of a

‗real‘ object and doing so with an ‗objective‘ quality of a mythological one?

There exists one more notable psychological concept that should be mentioned: ‗flow‘.

‗Flow‘ is described as a mental state of deliberate, unconscious immersion in an activity. Its author, Mihaly Csíkszentmihályi, attempts to describe major factors of optimal experiences and, ultimately, creativity and happiness (e.g. Csíkszentmihályi, 1990). According to him, optimal experience is ―when we feel a sense of exhilaration, a deep sense of enjoyment that is long cherished and that becomes a landmark in memory for what life should be like‖

(ibid).

Let us proceed to more empirically-oriented terms.

From the definitions of experiences above, it is clear that they are at the very core of human existence: on the individual level, they are the sources and results (depending on the definition) of everything we „try‟ in our life. They spur our emotions, form our memories and shape our characters. One may argue that it is because of the latter two that ‗experiential education‘ was born, and because of the former – that ‗experiential marketing‘ was.

Generally speaking, education tries to supply us with knowledge and influence our outlooks on life, shaping our character. Experiential education (or experiential learning) just embraces Galileo‘s famous saying that ―you cannot teach a man anything; you can only help him find it within himself‖. It argues that in order for an education system to be efficient, it should combine the discipline found in didactic education and the relative student freedom of

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progressive one. (see e.g. Dewey, 1916; Dewey, 1938; Dirkx, 2000). One possible way to achieve that might be to provoke students into Csíkszentmihályi‘s state of ‗flow‘. Dewey (1938) also says two interesting things about experiences. First, he directly states that each experience will influence a person‘s future, for better or worse. Second – that the value of an experience strongly depends on the person: taken to the extreme, one may find it exciting and beneficial, while another will see it as horrifying and harmful.

Experiences were long used in marketing. People are not robots – we experience things both rationally and emotionally. More than that, studies have shown that it is the emotional side that dominates our purchasing intentions & decisions today (see e.g. Kahneman, 2003). A notable work titled ‗Emotionomics‘ (Hill, 2008) speaks of various ways marketing specialists can tap into their customers‘ emotions, using the resulting experiences to promote and sell their products.

With the advent of a trend to pay attention to customers‘ experience and emotions, some authors went a step further to claim a new type of economy (Pine & Gilmore, 1998; 1999) or even society (Jensen, 1999) was emerging. The 1999 book by the former is considered to be the seminal work for the ‗Experience Economy‘ concept as it is used today in many an article.

2.2 Experience economy

The main idea of the experience economy is that experiences are now offered by marketers, instead of by the environment only. Dan Hill put a very good explanation of what companies in the experience economy should aim at: ―The intent is to make the enrichment of the customer's life the end 'product'‖ (Hill, 2008, p. 142).

The understanding of the place experiences take in economic life went through an evolution in the last three decades. Three stages of research could be identified within this process:

―marketing‖, ―distinct economic offering‖ and ―elaboration‖.

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Marketing stage

It all started with acknowledging the hedonic nature of interaction between people and things they buy. This, of course, is the domain of consumer behaviour & marketing scholars (Hirschman and Holbrook, 1982; Havlena and Holbrook, 1986; Hirschman, 1984; Unger and Kernan 1983). At this stage, experiences are considered good instruments to promote goods and services – an aspect of consumption, a supplement to the real products: ―Hedonic consumption designates those facets of consumer behaviour that relate to the multisensory, fantasy and emotive aspects of one‘s experience with products‖ (Hirschman and Holbrook, 1982, p.1). It is ―facets of behaviour‖ and ―experience with products‖, so it is clear that products come first, while experiences are seen as supplementary or instrumental.

A very good, and popular, example of the ‗marketing‘ approach to experiences is the concept of experiential marketing. In essence, it is very close to relationship marketing: it aims to instill joyous emotions about a product, brand or company in consumers. As a result, consumers are expected to experience (or relate towards) the product, brand or company in a certain way that will make them buy more of that company‘s product or stay loyal to its brand (Schmitt, 1999; Hill, 2008; Lenderman, 2006; Smilansky, 2009).

As can be seen, the ‗experiential marketing‘ approach is still popular today as it was ten years ago. However, its contemporary proponents often speak of experience as a key notion, rather than a supplementary one (e.g. Zimmerman, 2005). This comes into a vivid contradiction with the earlier consumer behaviour research: on one hand, experiences and emotions are considered as ‗baits‘ for the consumer, while on the other – they are spoken of as self-important things. This dichotomy seems to be unsolved in today‘s experiential marketing discourse.

Distinct economic offering stage

Feelings like joy, happiness and even personally relevant grieves are deeply valued by people in their own right, since that is essentially the content of their lives. That is why commercial companies and researchers in developed countries started distinguishing emotions (or the process of generating them – ‗experiencing‘) as a stand-alone type of economic offerings. When thought of in this manner, experiences are neither something happening naturally, nor a marketing instrument, but constitute the very core of customer

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value offered by a company. This is precisely the point Pine & Gilmore (1998, 1999) are making and the one that lies at the base of the ‗experience economy‘ concept that became so popular in the last decade.

History of economic offering types

Pine & Gilmore propose an evolutionary view of the development of economic offering types:

Figure 1. Progression of economic value & the price of coffee offerings (from Pine & Gilmore, 1999, pp.

21-22)

They say that ―The history of economic progress consists of charging a fee for what once was free‖ (Pine & Gilmore, 1999, p. 67). In this logic fungible commodities were first substituted with tangible goods as the most sought-after economic offering type, than goods got commoditized by the advent of services, and at the end of the 20^th century services were giving way to experiences whose distinction is that they are ―memorable‖. Elaborating just a little more on top of that, the authors say that experiences are ―rich in sensations‖, ―created only in the mind of an individual… …who has been engaged on an emotional, physical, intellectual, or even spiritual level‖ (Pine & Gilmore, 1999, p. 12). They also state that the next and final economic offering type would be the transformation. Transformations are presented as an offering developed on top of experiences via customizing them to fit individual clients. Transformations are supposed to change the customer in an inherently personal way, helping them overcome problems or develop competencies, and the end result will be the changed customer him-/herself. ―With transformations, the customer is the product!‖ (Pine & Gilmore, 1999, p. 172). It is somewhat confusing that experiences that are

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held as personalized services are supposed to become transformations via the same process of personalization. This is an example of one malicious tendency in the works of these authors: they start off with great ideas and when it comes to creating a model they pull things together too much, to the point of creating conceptual mismatches and collisions. This, however, does not diminish the creative value of their papers.

End products in the experience economy

Pine & Gilmore classify experiences into four ―realms‖:

Figure 2. Realms of experiences (from Pine & Gilmore, 1999, p. 30).

They instate two differentiating axes: absorption-immersion into an experience and active- passive participation in it. Depending on what happens to the customer or on what he does, the type of experience changes. In my opinion, this simple and hence wildly popular matrix has at least one fundamental flaw. The horizontal axis is, ostensibly, in the supplying company‘s domain, while the vertical one is largely taken care of by the customer‘s mind. It is the experience product design that renders it as demanding active or passive participation, but it is the customer who regulates the level of immersion into the experience. Furthermore, it is possible to immerse oneself in an experience during the process and absorb it afterwards. For example, consider playing chess (active participation) and watching a film (passive participation). In both cases, you could forget about yourself and be immersed in the world of figures and the playing field or the film‘s setting and character feelings, respectively. Afterwards, you could learn something or feel entertained by either of the two experiences. Since Pine & Gilmore themselves state that experiences should create an

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alternative reality for the customer to be or act in (Pine & Gilmore, 1999, pp. 47-49), i.e. it should immerse them, I feel the vertical axis of figure 2 above is largely artificial and out of place. However, it does provide us with more ways to view experiences as an end product and takes us away from the popular misconception that experiences equal entertainment.

That, apparently, was the authors‘ main goal for the graph, since they speak about this misconception right before presenting it.

Pine & Gilmore are not the only ones describing experiences as an end product of commercial companies. Among other things, Jensen (1999) speaks of ―emotional market‖ as a business environment that is now upon us. He says that ―Research at the Copenhagen Institute for Future Studies shows that the major growth in consumption in the future will be of a nonmaterial nature…‖ (Jensen, 1999, p. 52) and offers a rough categorization of this

―future‖ market that he calls the ―market for stories and storytellers‖ (ibid). Essentially, he does not distinguish between experiences and transformations as Pine & Gilmore do, while paying attention to aspects of emotional life that Pine & Gilmore largely ignored. For example, besides ―adventures for sale‖ (active participation experiences), he speaks of self- identification, ―peace of mind‖ and ―convictions‖ as end products (that would undoubtedly be classified as transformation goods by Pine & Gilmore), as well as markets for care, togetherness, friendship and love (ibid). The latter are an especially delicate matter, as they deal with human interconnections rather than individual feelings alone. Nevertheless, Jensen presents them delicately enough not to be repulsing.

We‘ve got experiences as a fact of life, as stated in section 2.1. We can produce and sell goods that help us get experiences and we can deliver services that can do so, because we can feel something about any tangible or intangible object in this world. So, even raw oil can be a source of experiences in the general meaning of the word, ‗as a fact of life‘. What Pine and Gilmore then imperatively state is that whenever the major selling point of an economic offering is emotional, it should be called „experience‟, and that such economic offerings are the only ones to be prioritized by any company: ―In the emerging Experience Economy, companies must realize that they make memories³, not goods, and create the stage for

3 This is a nice metaphor, but, as will be discussed in the next section of the chapter (2.3), nobody can create your memories for you – that is the work of your own soul and mind. A company, however, can help create those memories by providing the right environments, training, guidance etc.

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generating greater economic value, not deliver services. It is time to get your act together, for goods and services are no longer enough. Customers now want experiences, and they‘re willing to pay admission for them. There‘s new work to do, and only those who perform that work so as to truly engage their guests will succeed in this new economy‖ (Pine & Gilmore, 1999, p. 100). This situation, they argue, benefits both companies and individuals, as the former get price premiums over previous types of offerings, while the latter enjoy more product personalization and hence a better life.

This seems too ideal to be true, however. Pine & Gilmore themselves speak of authenticity as a key quality indicator for experiences (Pine & Gilmore, 2007), but what about hypocrisy, wrong expectations and misplaced images? The end products in the experience economy have a shadow side to them and are not as wholly blissful as it would seem from the first glance (Kociatkiewicz & Kostera, 2010). Other authors question the very statement that experiences make us happier than material things – i.e. tangible goods (Nicolao et al., 2009).

Sköld (2010) criticizes experience economy proponents for disregarding a broad ―range of ethical, political and economic consequences‖, although he seems to treat the concept mainly as a ―marketing fantasy‖ (ibid). Another questionable area is whether customers should own or share their purchases, including experiences (Belk, 2007). The latter one can also be paralleled with thinking of Jensen‘s ―markets‖ for care, togetherness, friendship and love.

Note also, that many of the already mentioned authors, both experience economy proponents and opponents, say that experiences will not and should not substitute other types of economic offerings – that rational motivations for purchases will still survive, even if they won‘t be dominant anymore (e.g. Jensen, 1999; Nicolao et al., 2009).

Lastly here, we should mention that the notion of experience as an end product was not coined in by Pine & Gilmore. For example, Arnould & Price (1993) discuss river rafting as an ―extraordinary hedonic experience‖ and speak of ―experiential themes‖ (compare to Pine

& Gilmore‘s ―theming of experiences‖). The themes they identified for rafting are worth mentioning to better understand the variety of experiences and transformations. They are:

personal growth and self-renewal (through overcoming discomfort, difficulties or even physical danger), harmony with nature, and community sense (or harmony with other people, in other words).

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Is experience economy about end products only?

The scope of the ‗experience economy‘ concept goes beyond end products alone. Pine &

Gilmore state that in the experience economy, not only products (be they B2C or B2B ones), but any work outputs at all should ideally be experiences, as that is what people on the receiving end will value most. They actively propone theatre as a model (not a metaphor) for all work-related activities, referring to a number of theatrical theory gurus, including Peter Brook, Richard Schechner and Konstantin Stanislavski. For example, a surprise visit by a troubled colleague is to be seen as a condition for playing a certain role. Unfortunately, Pine

& Gilmore portray the roles that people at work should play in too carnegian a way. Being effective in your work is important, as is staying in a role adequate to the experience you want to provide to your interlocutor, just as Pine & Gilmore say. But it does not necessarily mean blocking your true emotions and deceiving other people – it is possible to use them positively instead (Shostrom, 1974; Shostrom & Montgomery, 1990).

More than that, if we take a broader look at the implications of valuing experiences most and paying for them, we should look again at what Jensen (1999) writes. As a futurologist, he looks at the society that forms around valuing emotions. For example, he says that our understanding and attitude to work, the companies we work in, family and politics will have to change in what he used to call the ―dream society‖⁴.

Nevertheless, it is the ‗experience as an end product‘ approach that is the most important aspect of the ‗experience economy‘ concept, as well as the one that won it its popularity.

Pine & Gilmore‟s works that are seen as seminal in the field give a lot of food for thought and are a good start for understanding the major concepts, but they are not elaborate enough and contain a number of conceptual contradictions.

4 If we look today at the website of his consultancy company, http://dreamcompany.dk, one of the first phrases to catch one‘s attention is ―We help your company enter the experience economy‖…

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Elaboration stage

Since the experience economy as described by Pine & Gilmore is very broad in scope, there appeared a number of academic researchers who strived to create ―mind maps‖ of it. Such authors try to describe it as fully and broadly as possible through multiple case studies, delimiting themselves by admitting a universal classification of Pine & Gilmore‘s concept is hardly possible at all (Sundbo, 2008; Hjorth & Kostera, 2007; O‘Dell & Billing, 2005).

Other authors moved on from extensive and back into intensive development of the theory (Boswijk, Thijssen and Peelen, 2007). They coin in the notion of meaningful experiences, discussing the implications of what they call ―economic experiences‖ for individual psychology and society as a whole. They also organized a scientific ―node‖ to promote research in the field: ―The European Centre for the Experience Economy‖ (ibid). In order for experiences to be meaningful, Boswijk et al. propose the idea of a second-generation experience economy. What they talk about is very similar to Pine & Gilmore‘s notion of transformation economy. Boswijk et al. speak of experience co-creation with customers.

This means customizing experiences. And Pine & Gilmore say a customized experience has to be a life-changing experience, or a transformation, in other words.

A third group of researchers found the existing conceptual basis of the experience economy to be insufficient, and decided to further concretize and clarify it (Poulsson & Kale, 2004;

Eriksson, 2009, Lilja, Eriksson & Ingelsson, 2010). Even though Pine & Gilmore focused on experience as a stand-alone economic offering, rather than a marketing concept, they can still be seen by some as marketing gurus above all else. The reason for this is twofold. First, the experiential marketing discourse was strong at the time they first published and is still strong today, putting up a biased context for them. Even Pine & Gilmore themselves often slip and infuse the marketing perspective into what they say. Second, this can happen because they had failed to produce a clear definition for experiences as an economic offering – theirs is too vague, as the researchers mentioned in this paragraph point out.

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2.3 Commercial experiences

Most experience researchers speak of them as a general notion, the one described in section 2.1. They do not try to locate the special place of experiences among other economic offerings. Furthermore, when people first hear of the experience economy, it is quite common of them to see it as a part of the service sector and wonder why differentiate experiences from services at all. It appears this is exactly the question James Gilmore was answering during one of his presentations, stating that experiences are ―not a subset of services – they are distinct in kind‖⁵. However, as described below, this statement is self- contradictory: experiences are either distinct in kind and a subset of services, or neither.

Unlike experiences as a general notion, commercial experiences have much in common with other service offerings, although they do have a number of notable distinctions.

Conceptualization

Paying for the very fact of one‘s own effort seems rather ridiculous at first glance. When a company provides a commercial experience, it actually provides the customer with an opportunity for experiencing something, not with the experience itself. It is the customer‘s soul and mind that create the experience and the memories thereof, becoming both resources and materials for such creation⁶. This ‗opportunity‘ may include some sort of environment, preliminary training, personnel that is just right or something else, but it still will be something a company does for the customer. It is possible to create a manless environment – a playground – and market it as something spurring emotional reactions, experiences. But it will still account for an ensemble of tangible goods (or to a piece of information if we speak about virtual environments). If we state such environments are now ‗commercial experiences‘, we will have to discard the notions of tangible goods and information goods whatsoever. This does not look like an attractive advancement.

One may argue that a film, for example, is also an opportunity to experience something. That is true, but then any tangible or intangible instrument can be seen as an experience –

5 http://www.strategichorizons.com, retrieved on 15.04.2011

6 The customer‘s psyche can help create an experience (through active or passive participation, as discussed by Pine &

Gilmore), but without it the experience cannot be created at all, making it a major material.

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computer games, books, data sets, razors, raw tea... That would be unfortunate, because then the ‗experience economy‘ would be all about marketing and not about a special type of economic offerings. In that case, Joseph Pine‘s statement that ―the experience IS the marketing‖⁷ makes sense, ensnaring us in an ‗experience-is-everything-and-hence-nothing- in-particular‘ state – we are back to speaking of experience as a general notion. In order to evade this trap, we need to differentiate commercial experiences from other types of offerings.

One way to do so is to say that for an offering to be called a commercial experience, the company‘s employees should personally guide its clients during the process of gaining their experience. It means closely monitoring and co-controlling customers‟ emotions together with them. This would hold for theatre, for theme parks with ‗on-stage‘ personnel, for experience-conscious hospitals and high schools and even for some computer games in which the developers opt to influence their customers‘ gameplay through their own characters or developer-driven in-game events. If you, the customer, decide on the time of experience “consumption”, having all the necessary tools for it to happen at your command – it cannot be called a commercial experience. If thought of in this way, commercial experiences are indeed a part of services – although a very special one.

Commercial experiences conceptualized in this way seem to share all five classical key characteristics of services: intangibility, perishability, inseparability, simultaneity and heterogeneity (Parasuraman, Zeithaml and Berry, 1985). However, they have additional attributes that do not exist in other services. These were approximated in the formal definitions given to the term so far.

Poulsson & Kale’s definition

The first attempt to operationalize the concept of commercial experiences as a specific type of economic offering seems to have been made by Poulsson & Kale (2004). They pose three major questions: ―We need an understanding of what exactly [commercial] experiences are, how they differ from services and goods, and in what way they create value for companies and customers‖. Answering these, they define a commercial experience as ―an engaging act of co-creation between a provider and a consumer wherein the consumer perceives value in

7 http://www.strategichorizons.com, retrieved on 15.04.2011

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the encounter and in the subsequent memory of that encounter‖ (ibid). The authors proceed to admit the notion as a part of services, because it conforms to key service characteristics as listed above, and then describe differences between goods, services and (commercial) experiences. They formulate it in the following way: ―Purchase of a good leaves you with a physical object to keep, and a service will leave you with something done for you or your possessions or on your behalf‖; ―Goods, services and experiences all have a consumption phase, what differentiates an experience from the other two offerings is that here the consumption phase itself is the main product‖ (ibid). Note that they often use the terms

―experience‖ and ―commercial experience‖ interchangeably, but the title of their article clearly shows they speak of commercial experiences in most cases, including those cited here.

The second important contribution of Poulsson & Kale‘s article is in providing five crucial elements of commercial experiences. They are: ―personal relevance, novelty, surprise, learning, and engagement‖ (ibid). The authors state that for a customer to see an encounter as an experience, he or she has to see at least one of these elements in it. The elements are, of course, always subjective to the customer.

Eriksson’s et al. definition

The next variant of an operational definition for commercial experiences seems to appear in print five whole years later: ―A commercial experience is a memorable event that the customer is willing to pay for‖ (Eriksson, 2009; Lilja, Eriksson and Ingelsson, 2010). These authors introduce a chain of consecutive factors that lead to identifying an economic offering as a commercial experience:

Figure 3. How strong engagement drives high affect that is a key to make an event memorable and hence a commercial experience (from Lilja, Eriksson, and Ingelsson, 2010, p. 289).

Very importantly for this thesis, Eriksson mentions that it is ―remarkable that memorable, strongly emotional and strong engagement do not appear among the existing quality

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dimensions: tangibles, reliability, responsiveness, assurance and empathy that are often used when measuring the quality on services‖ (Eriksson, 2009, p. 40).

Eriksson‘s et al. definition is much shorter and clearer than Poulsson & Kale‘s, but it is a little problematic. The main problem with their definition is in the way they treat the word

―memorable‖. According to the Oxford English Dictionary, it can be understood in two ways: ―worth remembering‖ or ―easily remembered, especially because of being special or unusual‖⁸. Eriksson et al. openly use the second meaning, truncating it to the first two words and possibly confusing implied tenses. They make it unclear whether the main characteristic of commercial experiences is that they have to be easily memorized or easily recalled afterwards: ―memorable refers to ‗remembered‘ rather than ‗likely to be remembered‘.

Remembered is a must.‖ (Lilja, Eriksson and Ingelsson, 2010). In either case, speaking of memorability as a defining characteristic seems to be, in my opinion, taking a consequence for a factor, even if the authors clearly restrict themselves to the customer perspective. A commercial experience provider is to make an event worth remembering as in worth committing to memory, but making it easy to commit to memory is a different matter.

Additionally, it is unclear how it can be considered easily remembered beforehand at all.

Moreover, if we switch to the managerial perspective, even ―worth committing to memory‖

does not explain clearly what a company should do with its customers specifically.

Eriksson et al. make Poulsson & Kale‘s ‗elements‘ of experience converge into the single notion of engagement, arguing that all the other four lead to it (ibid). While that may be true,

‗factors of engagement‘, as they now appear, can still be of considerable interest for academics and experience firms alike. For example, they can be useful when speaking of commercial experience quality. Furthermore, Eriksson et al. seem to completely mistreat the notion of ‗personal relevance‘: they speak of it in terms of physical impact on customers, while in Poulsson & Kale‘s paper it clearly refers to clients‘ psychological affinity towards particular event themes.

At one point, Eriksson agrees with Pine & Gilmore in identifying the scope of experiences. It is stated to be larger than that of goods or services, because goods and services can be used as ―props‖ in creating and producing them (Eriksson, 2009, p. 8). However, when it comes to

8 www.oxforddictionaries.com/view/entry/m_en_gb0510700, retrieved on 24.04.2011

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choosing an empirical focus for her work, she says it is on ―hedonic services or ‗time- investment services‘, referred to here as commercial experiences‖ (ibid), narrowing the notion down. This is a natural self-restriction for a management-oriented paper, indirectly supporting our earlier argument that experiences in the broadest meaning (as a general notion) are only suited for psychological or marketing perspectives. They are not suited for treating them as a specific economic offering type.

Choosing a definition

Let us revisit our ‗conceptualization‘ section. Judging from it, commercial experiences:

are a specific subset of services

require companies to guide customers during the process of gaining their experience require companies to monitor and co-control customers‟ emotions together with them require the time of experience “consumption” to be arranged in an agreement

between the customer and the company

require companies to possess most of the resources (material or immaterial) for an experience to be created. The only notable exceptions are the two major resources and indispensable materials: the customer‘s mind and soul, or psyche, in one word.

Eriksson‘s et al. definition is too compact to incorporate all these conditions. Let us test Poulsson & Kale‘s operationalization for conformance with them. To recap, they say a commercial experience is ―an engaging act of co-creation between a provider and a consumer wherein the consumer perceives value in the encounter and in the subsequent memory of that encounter‖ (Poulsson & Kale, 2004). Since it is an ―act of co-creation‖, a provider company gets an opportunity and responsibility to guide its clients and co-control their emotions. This means the company has to do something for and with the customer, which identifies this act as a service and says the company should be there for the customer.

It also means the time of the event should be agreed upon by the involved parties. This makes this single expression, ―an act of co-creation‖, extremely valuable in the definition, taking care of four out of five conceptual conditions we set up. The first part of the last condition is taken care of indirectly: it is said that ―the consumer perceives value in the encounter‖. Of course, the intended meaning of this part is that the consumption phase itself is valuable in the case of commercial experiences. However, it can also imply that the client cannot take care of creating and producing a particular experience himself/herself. This

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means they have to rely on the provider company‘s resources. Lastly, Eriksson‘s experience quality dimension of ―emotional‖ is portrayed in the adverb ―engaging‖ (both others,

―memorable‖ and ―engaging‖, are dealt with openly). Eriksson et al. themselves state engagement is a ―critical driver of both positive and negative emotions‖ (Lilja, Eriksson and Ingelsson, 2010, see figure 3 above).

The sole thing left out of this definition is the importance of customer‘s psyche as both resource and material. Of course, this is mainly important from the company‘s perspective and it is only natural that neither given definitions pay attention to it, focusing on marketing and customer perspectives respectively. We could consider looking at the word ―engaging‖

again, which implies customers and companies alike should be psychically and/or mentally active, but that does not address the view of psyche as a ‗material‘. One additional complaint I would have is the usage of the word ―consumer‖. I do not think consumption is a proper notion to describe processes that deal with psyche or intellect. Taking all that into account, we can now produce an operational definition that will be used throughout this thesis.

A commercial experience is an engaging act of co-creation between a provider and a customer wherein the customer perceives value in the encounter and in the subsequent memory thereof and wherein the customer‟s psyche is the provider‟s major material and resource.

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Economy sectors and the place of commercial experiences

Usually, three sectors of economy are distinguished internationally: primary (raw material mining), secondary (tangible good manufacturing) and tertiary (services), as first proposed by Clark (1940). This framework is not static, however, as some researchers speak of quaternary sector (knowledge) and even quinary one (e.g. Dicken, 1992; Kellerman, 1985).

Let us see what can be done to put the notion of commercial experiences into this framework, so that their specific place can be better illustrated.

As we argued previously, experiences as a general notion are everywhere, so they have no specific place among economic offering types. Commercial experiences, on the other hand, are a subset of services:

Raw materials (commodities)

Tangible

goods Intangible economic offerings

Information /

knowledge services

utilitarian

“Time-investment”

(commercial experiences)

Transformations

Figure 4. Categorization of economic offerings and the place of commercial experiences.

Commodities and tangible goods are in full conformance with the evolution of economic offering types as proposed by Pine & Gilmore. These are the two accepted varieties of material goods. Tertiary and quaternary sectors are put as equal in scope, under an artificial umbrella of intangible economic offerings. Services are divided into utilitarian and ―time- investment‖ ones (e.g. Ying & Cheng, 2006; Mossberg, 2008). These latter are the commercial experiences as operationally defined in the previous section. Note that I do not use the notion of ‗hedonic services‘ here, as proposed by Ying & Cheng and Mossberg, since it seems too restrictive in terms of emotional variety commercial experiences might have.

Some authors suggest ―it is conceivable that experiences can be either a positive or negative encounter‖ (Walls, 2009), while others had discussed the notion of ‗nadir experiences‘ – i.e.

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―negative peak‖ ones (Mathes et al., 1982). Following their metaphor, hedonic experiences could be called ‗zenith experiences‘.

At the very bottom we see transformations, the ultimate intangible offering.

Transformations, as conceptualized by Pine & Gilmore, cannot be solely based on experiences – they need a rational kernel as well as an emotional one. First, in order to change you have to reflect on what you feel – i.e. you have to learn, or acquire knowledge.

Second, a change in a human being can be psychical, but it can also have a bodily side at the same time (e.g. changes in health or fit can have both sides). A bodily change would be a rational and tangible result of the provider company‘s actions, making it a utilitarian service in part. On the other hand, without engaged and emotional participation on the customer side – without effort – a transformation is hardly possible. That is what experiential education is concerned with, as discussed briefly in section 2.1 of this paper.

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3. Commercial experience quality

As we mentioned in the introduction, in this thesis we consider product quality as the main means of building customer value in commercial experience offerings. Understanding what quality, and thus ‗proper customer value‘, is for this offering type will allow us to then think of a fitting set of business processes. Unlike most of this thesis, we will adopt a customer- oriented approach here. Thinking of product quality from the managerial perspective is limiting oneself to objective variable measurements. Experiences, however, are clearly affective and subjective to the customer (e.g. Zaltman, 2003), and so focusing on objective quality should hardly be an option.

Finding papers speaking of commercial experiences strictly as defined above was already difficult. It is even more so for papers on commercial experience quality. One recent article is of particular use to us in this respect: Chang & Horng (2010) conceptually define experience quality and argue about its differences from service quality. They posit that customer assessment of service quality tends to be cognitive, while that of experience quality is generally subjective and emotional. That statement is based on references to a number of notable researchers: Parasuraman, Zeithaml, & Berry (1988), Gronross, (1988) and Holbrook and Hirschman (1982). Unfortunately for us, Chang & Horng do not exactly side with the

‗specific type of offering‘ outlook on commercial experiences. They instead focus on ―the notion of experience underlying the context of service‖, following e.g. Grove & Fisk (1992).

Another drawback for us is that they limit their research to ‗group customer‘ situations (think cinemas or collective tours) and admittedly omit settings where customers are to be alone or concentrate on the action rather than chatting with friends. Nevertheless, Chang & Horng‘s article is of much value to us, since the authors ground five dimensions of [commercial]

experience quality: physical surroundings, service providers (guides, “on-stage” personnel), other customers, customers‟ companions and customers themselves. We will now look at four of these in more detail⁹, argue about process vs. product quality dimensions and finish by presenting both of these dimension groups for quick reference. It should be noted that we do not attempt to develop a quantitative measurement instrument analogous to SERVQUAL – that is a next step. We stop at gathering diverse conceptual evidences into one.

9 ―Customers‘ companions‖ is subject to Chang & Horng‘s research limitations as mentioned. For a more generalized discussion of commercial experiences, we can consider ―companions‖ to be a part of ―other customers‖.

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3.1 Physical surroundings

This is the physical environment in which the process of experiencing takes place. It is the sum-total of what Pine & Gilmore would call ―props‖ – an ensemble of tangible stimuli.

―When a customer steps into and stays in a service environment, he or she interacts with the physical surroundings by five senses and acquires experiences at the same time‖ (Chang &

Horng, 2010). Service environment, servicescape, physical design or atmospherics has been long seen as a major issue for service organizations (e.g. Booms & Bitner, 1982; Bitner, 1992).

Bitner (1992) proposes three groups of environmental dimensions that shape the servicescape: ambient conditions (temperature, scents, noises etc.), functional layout (equipment, furnishings) and symbolic meanings (artifacts and style). Interestingly, she also mentions that in order for a servicescape to work as expected, customers‘ internal responses (emotional, cognitive and physiological) should be taken into consideration. This corresponds well with our understanding that customer psyche is an important material and resource for creating a commercial experience.

There are works emphasizing the importance of physical environments for offerings close to commercial experiences. Joseph-Mathews, Bonn & Snepenger (2009) speak of atmospherics in hedonic services, proving linkages between service environment, customers‘ ‗symbolic perception‘ of it and their behavioural intentions. Mossberg (2008) discusses servicescapes as an instrument for storytelling, particularly in tourism and hospitality, stating that ―the servicescape can tie together the consumption setting by visualizing cues from the story‖.

O‘Dell & Billing (2005) also focus mainly on tourism and coin in the notion of

―experiencescapes‖. Focusing on experiences allows these authors to move beyond physical servicescapes: they say that the surroundings for an experience (or commercial experience) can be completely immaterial – i.e. imagined or virtual (O‘Dell & Billling, 2005, p.16).

3.2 Guides (on-stage personnel)

This is another popular topic for service quality scholars. For example, notions like ―service encounter‖ (Bitner et al., 1999) or ―moments of truth‖ (Gronross, 1990) deal with ―on-stage‖

personnel. Focusing on service experiences, Chang & Horng (2010) go as far as to claim that

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―interactions between customers and service employees constitute customers‘ experiences‖.

A likewise thought can be seen in Grove & Fisk (1992): ―Similar to a theatrical production whose success relies upon the acumen of those on stage, the quality of one's service experience is largely affected by the service's contact personnel. The service's actors, the performers of the service, are often perceived by their audience, the customers, as the service itself‖ (see also Gronroos, 1985).

Although commercial experiences are a little more complex than that, they are necessarily an act of co-creation between customers and providers (see our definition of the term above).

Because of that, ―on-stage‖ personnel directly influence (and guide, ideally) the creation of customers‘ experience, and thus are partly in charge of its quality. Similar ideas can be found in Sundbo (2008).

Since we speak of the quality of service personnel work, we should touch on the concept of emotional labour. According to its author, Arlie Hochschild, a job involving emotional labour is characterized by the following:

direct employee-customer contact

personnel are required to produce an emotional state in other individuals (primarily clients and co-workers)

employees‘ emotional states are to a certain degree controlled by the employer (Hochschild, 1983)

All of that fits commercial experiences like a glove. The latter of the three conditions, however, should be paid additional attention. Hochschild (1983, 2005) seems to be rather critical of emotional labour as a social phenomenon. Although she has been researching it for so long, she does not seem to approve of it¹⁰. That is why in the third condition she speaks of external control over employee emotions, rather than internal one. Internal control is possible and can take several forms: emotion regulation, surface acting, deep acting or true engagement in the role (Grandey, 2000; Grove & Fisk, 1989). True personnel engagement is discussed at length by internal marketing researchers (e.g. Gronroos, 1985;

10 Hochschild criticizes the commercialization of emotions and personal life per se and questions the relationship between sacred and salable. In my opinion, her criticisms may be valid, but they are ultimately directed against labour division. The only way to preserve absolute authenticity of every emotion then is to restrain ourselves to natural economy. I doubt many people would choose that.

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Ahmed & Rafiq, 2002). Whatever the means, it is true that on-stage employees should at least act in accordance with the commercial experience theme and setting, or else the experience quality will suffer greatly.

3.3 Other customers

With these, Chang & Horng (2010) mainly focus on delinquent behaviour that can interrupt the normal flow of experiencing. But let us employ theatrical terminology that is so justly popular in experience literature. Imagine you are staging a play together with a provider‘s guides. If you do not have the luxury to pay for other roles to be filled with the company‘s employees, these other roles will be played by other customers. In commercial experiences, customers become a part of the play for each other, influencing each other‟s experience.

This means other customers can influence your experience positively, opposed to solely negatively as portrayed by Chang & Horng.

Consider ‗adventure tourism‘: if you go on a trip as a group, other customers will likely go through joys and hardships together with you. Even if you did not know them before, collective activities will bring you to become each other‘s ―companions‖. This holds true for less demanding situations as well, like staging an actual theatrical play: if we speak of ‗co- creation‘ and there is more than one customer co-creating with a provider‘s guide, all the customers will have to co-create with each other.

With that considered, all that was said about on-stage personnel is also true for ―on-stage customers‖, including emotional labour and engagement in one‘s role not only for one‘s own, but for others‘ sake as well, if they are present. Customers and employees form a common group that influences each individual‟s experience quality (this common group is collectively called ―actors‖ by Grove & Fisk, 1992). This also means customers‘

performance influences employee satisfaction, and consequently their engagement and their performance. Emotional reactions (and consequential behaviours) of customers and employees influence each other.

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3.4 Customer selves

Chang & Horng (2010) say customers themselves are ―a significant dimension of experience quality‖, indicating two ‗personal‘ factors of such quality: cognitive learning and having fun.

Both of these factors were seen when we discussed commercial experience quality definitions, and the whole statement reinforces our claim that customer psyche is an indispensable material and resource for its creation. ―Learning‖ is singled out by Poulsson &

Kale (2004), although Eriksson et al. (2010) put it under the umbrella of customer engagement. Engagement, in turn, is emphasized by both of these author groups. Having fun and being engaged can be seen as very close notions, hence the statement that the former was already seen in this thesis.

Personal engagement, as Eriksson et al. (2010) point out, is ―a critical driver of emotions‖.

―An engaging act of co-creation…‖ that any commercial experience is cannot unfold without customer engagement.

Another important issue for this quality dimension is ―personal relevance‖, as in ―customer- experience theme fit‖ (Poulsson & Kale, 2004). For example, if you don‘t like high fantasy, you will not enjoy a fantasy-themed event, however good it might be in terms of physical surroundings, provider‘s guides and other customers‘ behaviour. Additionally to personal relevance, some commercial experiences may demand a certain minimum of skills or knowledge. In the already familiar example of an adventure tour, you might have to be able to navigate by the stars or start a fire.

To list additional evidence for this commercial quality dimension we can refer to servicescape and service experience literature. As briefly mentioned in the ‗physical surroundings‘ section (3.1), Bitner (1992) posits the importance of customers‘ internal responses (emotional, cognitive and physiological) for ―environment-user relationships in service organizations‖. Grove & Fisk (1992) speak of the necessity for customers to prepare and ―rehearse‖ their roles for the service encounter. The latter gives us an ―internal‖

perspective on the dimension of ―other customers‖: preparing for an event is not only making sure you will have proper fit and engagement in it, but also making sure you will be a good ‗other customer‘ for the rest of the clients.

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3.5 Process quality vs. memory quality

In services, it is possible to distinguish between product focus and process focus: ―A product-oriented service is where the emphasis is on what the customer buys. A process- oriented service is where the emphasis is on how the service is delivered to the customer‖

(Van Looy, Gemmel & Dierdonck, 2003, p. 263).

In commercial experiences, the process of service delivery is the product. However, even here we can distinguish between process and result. Eriksson et al. (2009, 2010) emphasize memorability as a distinct characteristic of experience offerings. Pine and Gilmore (1998, 1999, 2007) also say creating memories are important. However, memories did not show up in the discussion of experience quality dimensions above. This is because they are, essentially, process quality dimensions. Therefore, for a more complete picture of commercial experience quality, we should additionally introduce dimensions of product quality. The latter can also be called quality of the result, aftermath or memory.

For the first dimension of after-experience memory quality, we can put thematic wholeness of the said experience. Pine & Gilmore advocate that ―engaging themes integrate space, time, and matter into a cohesive, realistic whole‖ (1999, p. 51). This means that physical surroundings, provider‘s guides, other customers and, arguably, even a customer‘s own behaviour should be in harmony with each other and conform to the same theme. Then, when remembering the experience, the customer will see it as a whole instead of nit-picking on its elements. It is like remembering a good musical piece: you do not think of drums and vocals separately – you hear them in ensemble in your head. The same goes for commercial experiences: for a quality aftermath or memory, you should not be able to find thematic gaps between surroundings, actors and your own actions – even with cognitive analysis.

Another complex dimension for memory quality is the personal impact of an experience.

Eriksson et al. (2010) speak of emotionality as a factor of memorability. It is my belief that they mistreated verb tenses when speaking of memorability, but in this particular case it may come out helpful. Following their logic, the stronger the emotions an experience provides, the more vivid and fond a memory of that experience will be. Fond and vivid seem like desirable qualities of a memory, so emotionality becomes a factor of memory quality.

Internal value chain for commercial experience companies